Which Jurisdictional Route Should 'Personal Guarantors' Take - NCLT Or DRT?

The excerpts from the famous poem by Robert Frost, The Road Not Taken,—“Two roads diverged in a yellow wood, And sorry I could not travel both…”—aptly illustrate the challenge of choosing the right forum or the 'Adjudicating Authority' for insolvency resolution process of personal guarantors under the Insolvency and Bankruptcy Code, 2016 (IBC/ the Code). While one way leads to the National Company Law Tribunal (NCLT); the other leads to the Debt Recovery Tribunal (DRT). Both roads are sometimes traversed in parallel proceedings before the two forums.

Why does this issue arise? It does so because the liability of the personal guarantor is co-extensive with that of the corporate debtor whose insolvency proceedings are pursued before the NCLT. As such, proceedings related to the Corporate Debtor and Personal Guarantor are clubbed together. At the same time, the matters related to insolvency of 'individuals' are governed by Part III of the Code, which designates the DRT as the Adjudicating Authority. The jurisdiction for matters of insolvency of Personal Guarantors under the IBC is thus divided between the DRT and the NCLT.

Recently, in the case of Anita Goyal Vs. Vistra ITCL (India) Ltd. & Anr^[1], the issue of appropriate Adjudicating Authority for the insolvency resolution process of personal guarantors was discussed. This article breaks down the ambiguity around this issue from the standpoint of the overarching legislative framework and contradictory yet converging judicial perspectives.

The Right Forum For Insolvency of Personal Guarantors Under the IBC Regime

Part III of the Code deals with Insolvency Resolution and Bankruptcy for Individuals and Partnership firms.^[2] As per section 5(22) of the IBC, a personal guarantor is an individual who is the surety in a contract of guarantee to a corporate debtor.^[3] Personal guarantors, being individuals, fall under Part III of the Code. As per section 94, a debtor (here, personal guarantor) who commits a default can initiate the insolvency resolution process against itself personally or through a resolution professional, by filing an application with the Adjudicating Authority.^[4] Likewise, a creditor can initiate insolvency resolution process against a Personal Guarantor under section 95.^[5]

Section 179 of the Code provides that the Adjudicating Authority for individuals and partnership firms shall be the jurisdictional DRT in respect of any suit or claim made by or against it.^[6] Personal Guarantors who are 'individuals' can thus be proceeded before the DRT. Section 179 was dormant until it was brought into effect on December 1, 2019^[7], which was upheld by the Supreme Court in Lalit Kumar Jain v. Union of India & Ors^[8].

However, in Lalit Kumar Jain (supra), the Supreme Court held that 'personal guarantors of a corporate debtor' represent a 'distinct category of individuals'. On this basis, the NCLAT in Anita Goyal Vs. Vistra ITCL (India) Ltd. & Anr.^[9] held that personal guarantors should be treated separately from other individuals under Part III.

Section 60 of the IBC confers the jurisdiction for proceedings against personal guarantors upon the NCLT if the proceedings under the code have been initiated against the corporate debtor. Sub-section (1) of section 60 of the code provides that the Adjudicating Authority in relation to insolvency resolution and liquidation for corporate debtor and personal guarantors shall be the jurisdictional NCLT.^[10] Sub-section (2) of section 60 states that when a CIRP or liquidation proceeding is pending against a corporate debtor, the insolvency application of its Personal Guarantor shall be filed before the same NCLT which is adjudicating the corporate debtor's case.^[11] Sub-section (3) provides that the proceeding in respect of a personal guarantor of the corporate debtor pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor.^[12] Section 60(4) vests the NCLT with the powers of the DRT for the purpose of Sub-section (2).^[13]

In SBI v. V. Ramakrishnan^[14], the Supreme Court clarified that if insolvency proceedings against personal guarantors are initiated or transferred to the jurisdictional NCLT, the NCLT will continue to apply the Presidency Towns Insolvency Act, 1909 or the Provincial Insolvency Act, 1920, rather than the IBC.

The legislative intent of consolidating related insolvency proceedings to avoid multiplicity of proceedings is clearly implicit in these provisions. The section allows financial creditors to simultaneously proceed against the Personal Guarantor and the Principal Debtor whose liabilities are co-extensive, till the time outstanding due amount is recovered.

While Section 179(1) expressly grants jurisdiction to the DRT, it is subject to Section 60, meaning that if a corporate debtor is undergoing CIRP or liquidation, the NCLT assumes jurisdiction over the Personal Guarantor's insolvency. For all other cases involving individuals and firms, including personal guarantors, jurisdiction lies with the DRT. Thus, both NCLT and DRT have authority over proceedings against personal guarantors, but in different circumstances under the Code. The Supreme Court, in Lalit Kumar Jain (supra) held that the NCLT serves as the common adjudicating authority for both corporate debtors and their personal guarantors. It can thus be concluded that when Section 60 applies, Section 179 ceases to be applicable, and jurisdiction vests solely with the NCLT.

The Supreme Court in Lalit Kumar Jain (supra), clarified that the scheme of Sections 60(2) and (3) mandates that when insolvency proceedings against a corporate debtor are pending, any bankruptcy proceedings against its personal guarantor if initiated before the corporate debtor's insolvency, must be transferred to the NCLT; and if initiated after the corporate debtor's insolvency proceedings, must be filed directly before the NCLT.

The main issue that crops up here is whether the insolvency proceedings against personal guarantor can be initiated before the NCLT under section 60 in the absence of CIRP proceedings in respect of the Corporate Debtor?

Maintainability of Section 95 application 'in absence of' CIRP proceedings against Corporate Debtor

The issue at hand is to identify the appropriate forum for adjudicating the insolvency proceedings of a personal guarantor when the borrower or principal debtor has not been admitted, and the CIRP has not commenced under the Code. This question is pertinent given the backlog in NCLTs, where numerous CIRP applications are pending without admission.

Recently, the NCLT Kolkata in Tata Capital Financial Services Limited vs. Arjun Agarwal^[15] held that an application under Section 95(1) of the IBC for initiating insolvency proceedings against a personal guarantor is not maintainable before the NCLT if no CIRP or liquidation proceeding has been initiated or is pending against the Corporate Debtor. In that case, two proceedings were linked together, i.e., one against the Corporate Person and another against the Corporate Guarantor and/or Personal Guarantor.^[16]

This judgment diverges from the case of Mahendra Kumar Agarwal v. PTC India Financial Services Ltd.^[17], wherein the NCLAT Chennai held that the NCLT has jurisdiction to entertain or initiate insolvency proceedings of personal guarantors, even when no CIRP proceedings are pending against the Corporate Debtor. Likewise, in State Bank of India vs. Mahendra Kumar Jajodia^[18], the NCLAT New Delhi held that the pendency of a CIRP or liquidation proceeding is not a sine qua non for maintaining a petition under Section 95. The NCLAT held that:

“the Application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed by the Appellant was fully maintainable and could not have been rejected only on the ground that no CIRP or Liquidation Proceeding of the Corporate Debtor are pending before the NCLT.”

However, post it, various judgments have taken a contrary stance by distinguishing the facts of Mahendra Kumar Jajodia (supra) and allowed the uncertainty over the NCLT's jurisdiction in such matters to creep in. For instance, very recently, in State Bank of India v. Nijunj Bothra^[19], NCLT Kolkata clarified that Mahendra Kumar Jajodia (supra) was fact-specific as CIRP against the corporate debtor had been preferred at a prior point in time, which had resulted in a resolution plan. Therefore, the case of Mahendra Kumar Jajodia (supra) did not establish that personal insolvency applications can proceed before the NCLT without an initiated, pending, or concluded CIRP. The NCLT re-iterated that in such cases, the proper forum is the DRT.

In Tata Capital Financial Services Limited (supra), the Tribunal observed that whether the same is maintainable at NCLT or the DRT was an unresolved question of law. It observed that the proceedings in regard to the Corporate Debtor or the Personal Guarantor must be filed before one entity only which can address the very essence of the value maximization. The Tribunal observed that section 60(2) stipulates that when the CIRP or liquidation proceeding is pending before an NCLT, an application relating to the Insolvency resolution or Bankruptcy of a Personal Guarantor shall be filed before such NCLT to avoid multiplicity of the judicial fora. Since the proceedings were in the nature of recovery proceedings only, the Tribunal held that the NCLT shall not be the Adjudicating Authority in such cases as it is not a recovery forum.

The Tribunal observed that the NCLT shall have jurisdiction on the matters “arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor” as provided under section 60(5). If any matter is not related to the insolvency or liquidation proceedings of the corporate debtor or corporate person under the code, NCLT shall not have jurisdiction. The Tribunal held that since no application for insolvency had been filed against the Corporate Debtor, the petition was not maintainable before the Tribunal, but may be maintainable at other fora.

More recently, shadowing the same ratio, in Indian Bank v. Dharmesh Kumar Baid^[20], the NCLT Kolkata ruled that an application under Section 95(1) of the Insolvency and Bankruptcy Code (IBC) against a personal guarantor is not maintainable before the NCLT unless a CIRP against the corporate debtor is initiated, pending, or concluded before the NCLT. Since no CIRP was ever initiated against the corporate debtor, the petition was dismissed, and the appropriate forum was held to be the DRT. This judgment has ushered in much needed clarity on the issue. The Madras High Court in Rohit Nath v. KEB Hana Bank Ltd.^[21] took a similar stance and held that personal insolvency proceedings must be filed before the jurisdictional DRT in terms of section 79(1) and not the NCLT, if no CIRP is initiated against the corporate debtor.

In Altico Capital India Ltd. v. Rajesh Patel & Ors.^[22] and Insta Capital Pvt. Ltd. v. Ketan Vinod Kumar Shah^[23], the NCLT Mumbai addressed whether insolvency proceedings for a personal guarantor could be initiated when an application for the corporate debtor was merely filed but not yet admitted. The NCLT held that such an application was not maintainable unless the corporate debtor was already undergoing insolvency or liquidation. It reasoned that allowing such filings would effectively transfer DRT's jurisdiction to the NCLT.

However, the NCLT Delhi in PNB Housing Finance v. Mr. Mohit Arora^[24] took a different stance. It held that if a CIRP application against the borrower is pending before the NCLT (even if not yet admitted), insolvency proceedings against the personal guarantor can still be filed before the same NCLT.

In an earlier contradictory judgment, the NCLAT, New Delhi, in Dr. Vishnu Kumar Aggarwal v. Piramal Enterprises Limited^[25] held that initiating CIRP against the principal borrower is not a prerequisite for commencing CIRP against the corporate guarantor. It held that a financial creditor may initiate insolvency proceedings against both the corporate debtor and the guarantor for the same debt and default; however, once one of these applications is admitted, the other will not be entertained. This judgment is particularly contentious in the context of the issue at hand as the very purpose of a guarantee is its co-extensive nature and the availability of an independent remedy. The NCLAT had rendered this decision, expressing strong disapproval against “double-dipping” viz. concurrent proceedings against Corporate Debtor and Guarantor. While preventing 'double recovery' for the same debt is necessary, the application of this ratio to Personal Guarantors may lead to confusion and parallel proceedings.

The Final Say?: Analysis of the Ratio Decidendi in Anita Goyal

In Anita Goyal Vs. Vistra ITCL (India) Ltd. & Anr^[26], the NCLAT, New Delhi put an end to the long-standing debate. The Tribunal held that an application under section 95 of the Code against Personal Guarantor is maintainable before the NCLT under section 60(1) of the Code even if no CIRP or Liquidation process is initiated or pending against the corporate debtor before the NCLT.

The reasoning of the Tribunal was that section 60(2) uses the word “without prejudice”, which implies that what follows it does not limit the general scope of the provision. The tribunal held that Section 60(1) of the Code still applies, meaning the NCLT would be the Adjudicating Authority for entertaining insolvency proceedings against a personal guarantor. This is true even though Section 60(2) states that when insolvency or liquidation proceedings against the corporate debtor are before the NCLT, any application against the personal guarantor must also be filed there.

The NCLAT observed that a plain reading of Section 60(1) clearly establishes that the appropriate forum for insolvency resolution of personal guarantors is the NCLT. The tribunal clarified that Section 60(2) applies only when a CIRP or liquidation proceeding of a corporate debtor is already pending before the NCLT. In reaching this conclusion, it relied on Mahendra Kumar Agarwal (supra).

The NCLAT held that the Rohit Nath (supra) ruling does not serve as a precedent, as it was based on the specific facts of that case. It also determined that the Tata Capital (supra) judgment contradicted binding decisions of the NCLAT and the Supreme Court in the Mahendra Kumar (supra) case, rendering them per incuriam.

The tribunal observed thus:

“with regard to maintainability of Application under Section 95 by a Financial Creditor against a Personal Guarantor, even if no insolvency resolution process or liquidation proceedings of a Corporate Debtor is pending, has been held to be maintainable and the view taken by this Appellate Tribunal in Mahendra Kumar Jajodia has also received the approval of the Hon'ble Supreme Court”.

Through this judgment, the NCLAT has broadly interpreted the provisions of the IBC, diverging from the settled position established by previous rulings. What is striking here is that apparently, the tribunal overlooked Sections 79(1) and 179 of the IBC, which delineate the jurisdiction of DRT in matters of personal guarantors. Nevertheless, through this judgment, the NCLAT has made the position certain and the decision is expected to have important implications.

Conclusion & The Way Forward

From the previous discussions, it is clear that in all cases, the proceedings against the personal guarantor of a corporate debtor must be taken before the NCLT in terms of section 60, as held in Anita Goyal (supra). However, this diverges from the ratio laid down by NCLT Kolkata in Tata Capital Financial Services Limited (supra) and Indian Bank (supra) and the Madras High Court in Rohit Nath (supra), i.e., if no CIRP proceeding has been initiated or is pending against the Corporate Debtor, the appropriate forum will be the DRT as per section 95 of the Code.

The DRTs were established under the Recovery of Debts and Bankruptcy Act, 1993, to facilitate the expeditious adjudication and recovery of debts due to banks and financial institutions. On the other hand, NCLTs were constituted under the Companies Act, 2013 for adjudicating corporate disputes, including those under the IBC. In essence, DRT is a debt recovery forum whereas the objective of NCLT is twofold, i.e. to resolve the Debtor and to maximize the value of the assets of the debtor to ensure its revival so as to enable it to start on a 'clean slate' basis. In this context, depending on the objective of the proceeding and provisions of the Code and the judgments rendered, the personal guarantor may be proceeded in the appropriate adjudicating authority. If the objective is mere recovery of debt, the proceedings should ideally lie before the DRT; whereas if the objective is to revive the guarantor, who has 'stepped into the shoes of the corporate debtor', NCLT is most certainly the appropriate forum.

The fragmentation of insolvency adjudication between the NCLT and the DRT has been used scrupulously to the advantage of one party. It allowed a corporate debtor's financial distress to be framed one way before the NCLT while presenting an entirely different financial picture before the DRT. This strategic maneuvering not only distorts the adjudicatory process but also undermines the very objective of insolvency resolution—ensuring a fair and equitable settlement for all stakeholders. Sections 35 to 37 of the Bharatiya Sakshya Adhiniyam, 2023 provide another layer of shield for such parties, as judgments and findings in one forum do not carry binding evidentiary weight in another.^[27] This calls for a more integrated and coherent approach to personal guarantor insolvency proceedings.

1. Company Appeal (AT) (Insolvency) No.2282 of 2024. ↑

2. See Section 78, Insolvency and Bankruptcy Code, 2016. ↑

3. Section 5(22), IBC. ↑

4. See Section 94, IBC. ↑

5. See Section 95, IBC. ↑

6. See Section 179, IBC. ↑

7. Notification No. S.O. 4126(E), dated November 15, 2019. ↑

8. (2021) 9 SCC 321. ↑

9. Company Appeal (AT) (Insolvency) No.2282 of 2024. ↑

10. See Section 60(1), IBC. ↑

11. See Section 60(2), IBC. ↑

12. See Section 60(3), IBC. ↑

13. See Section 60(4), IBC. ↑

14. (2018) 17 SCC 394. ↑

15. I.A.(IB) 1670/KB/2024 in C.P.(IB) 51/KB/2024. ↑

16. Application U/S 95(1) of IBC against Personal Guarantor Not Maintainable in Absence of CIRP Proceedings, (3 January 2025) <https://www.livelaw.in/ibc-cases/nclt-kolkata-application-us-951-of-ibc-against-personal-guarantor-not-maintainable-before-nclt-in-absence-of-cirp-or-liquidation-proceedings-against-corporate-debtor-279855> accessed 28 February 2025. ↑

17. Company Appeal (AT) (CH) (INS.) No. 8 of 2023. ↑

18. Company Appeal (AT) Insolvency No. 60 of 2022. ↑

19. C.P. (IB)/262(KB)2022. ↑

20. C.P. (IB)/159(KB)2024. ↑

21. C.R.P. No. 2513 of 2022 and C.M.P. No. 12925 of 2022. ↑

22. I.A. 1062/ 2021 in C.P. 293/ 2020. ↑

23. CP (IB)/ 1365/MB-IV/2020. ↑

24. C.P. No. (IB)-395(ND)2021. ↑

25. Company Appeal (AT) (Insolvency) No. 346 of 2018. ↑

26. Company Appeal (AT) (Insolvency) No.2282 of 2024. ↑

27. See Sections 41 to 43, the Indian Evidence Act, 1872; Sections 35 to 37 of the Bharatiya Sakshya Adhiniyam, 2023. ↑

Author is a final year B.A. LL.B. (Hons) Student at the Faculty of Law, Jamia Millia Islamia and IBC and Arbitration Correspondent at LiveLaw. Views are personal.